LensCrafters 2004 Annual Report Download - page 66

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MANAGEMENT’S DISCUSSION AND ANALYSIS
65
expenses, thanks to economies of scale of the retail
structure.
General and administrative expenses, including the
amortization of intangible assets, increased 22.8% in
2004 to Euro 345.2 million compared with Euro 281.0
million in 2003. Part of this increase of approximately
Euro 28.4 million was attributable to the consolidation
of OPSM Group and the amortization of the brand for
the full year, while Euro 24.9 million were attributable
to the consolidation of Cole National for the fourth
quarter of 2004. This increase was also partially offset
by the devaluation of the U.S. currency against the
Euro, resulting in lower general and administrative
expenses of Euro 17.6 million. As a percentage of
sales, general and administrative expenses
increased in 2004 to 10.6%, from 9.8% in 2003,
primarily as a result of the consolidation of OPSM
Group for the full year. Management believes that the
full integration of OPSM Group into the Group will
increase that company’s operating margins.
Furthermore, the process of integrating and
restructuring Cole National within the Group is already
underway, and should bring about a decrease in the
percentage of general and administrative expenses
over the course of 2005.
INCOME FROM OPERATIONS
Income from operations increased in 2004 14.1% to
Euro 492.8 million, from Euro 431.8 million in 2003.
As a percentage of sales, income from operations
was constant at 15.1% in 2004 and 2003.
Operating margins for all manufacturing and
distribution activities increased to 21.3% in 2004,
compared with 19.2% in 2003. This increase resulted
from improved efficiencies of fixed cost structures,
arising from increased sales.
Operating margins for retail sales decreased in 2004
to 13.2%, from 13.3% in 2003. It is expected that the
consolidation of Cole National, where operating
margins were lower than at other companies in the
retail division, will result in a further decrease in
operating margins in 2005.
INCOME AND OTHER
NET EXPENSES
Income and other net expenses totaled Euro (35.7)
million in 2004, compared with Euro (42.0) million in
2003. This improvement was primarily due to higher
income from foreign exchange operations.
With the acquisition of Cole National, as previously
discussed, and a trend towards increasing income,
the Group anticipates a significant increase in these
expenses in 2005.
NET INCOME
Income before taxes increased in 2004 17.3% to Euro
457.2 million, from Euro 389.8 million in 2003 for the
reasons discussed above. As a percentage of sales,
net income increased to 14.0% in 2004, from 13.7% in
2003. Minority interests in 2004 totaled Euro (8.6)
million, compared with Euro (5.1) million in 2003. As a
result the announcement of the acquisition of the
remaining outstanding shares of OPSM Group it did
not already own, the Group anticipates a decrease in
minority interest rates in future periods. The effective
tax rate was 35.4%, on target with management’s
estimates, compared with 30.1% in 2003. The tax rate
is expected to continue to increase in future periods,
following the expiration of the effective period for tax
benefits arising from previous losses recorded in the
financial statements of the Group’s subsidiaries. Net
income increased in 2004 by 7.3% to Euro 286.9
million, from Euro 267.3 million in 2003. As a
percentage of sales, net income decreased to 8.8% in
2004, from 9.4% in 2003.
Income per share in 2004 was Euro 0.64, compared
with Euro 0.60 in 2003. Income per diluted share in
2004 was Euro 0.64, compared with Euro 0.59 in
2003.